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Closing Market Report

Star-Bulletin news services

Saturday, March 31, 2001

Portfolios get
spruced up for quarter

But this week's stock moves by
institutions also could have been
profit-taking in a bear market


By Lisa Singhania
Associated Press

NEW YORK >> Wall Street's gyrations can be attributed to many causes, but, ultimately, the volatility comes down to a question of who is buying stocks and who is selling.

A lot of the credit for this week's market fluctuations has been given to professional money managers, the people who buy and sell billions of dollars in stocks on behalf of institutions, mutual funds, pension funds and other businesses.

These large customers are the 800-pound gorillas of the markets. Although individual investors are more involved with stocks than ever, their influence pales when compared with institutions, whose transactions of tens of thousands of shares at a time can make or break a stock.

Institutional buying and selling has always dominated Wall Street, but that role received more attention than usual this week because March 30 was the end of the fiscal first-quarter.

"Mutual funds are required to report earnings four times a year to the Securities and Exchange Commission and twice a year to shareholders," said Paul Dykstra, an adjunct professor at Northwestern University School of Law. "So, shortly before the end of the quarter, some funds will sell stocks in portfolios that are in disfavor."

Managers will also buy stocks that are doing better to improve their portfolios. The effects and extent of these transactions, pejoratively referred to as "window-dressing" because they are designed to make funds look more profitable and competitive than they might actually be, are debatable.

Some argued that alternating waves of buying and selling this week -- the markets generally rose Monday, Tuesday and Friday but fell Wednesday and Thursday -- reflect the quarter-end buying and selling.

"There's no doubt that this puts a lot of pressure on the markets," said Larry Wachtel, a market analyst at Prudential Securities. "There's a lot of end-of-quarter stuff going on. Mutual funds sell their tech stocks, for example, because they don't want to show their losers on the books."

But it's hard to know how much of the activity is really "window dressing" rather than profit-taking in a bear market.

Ciena Corp., for example, traded lower by about 50 percent this week, during a time when 91 percent of the stock's trades were institutional. Similarly, institutions accounted for about 52 percent of the trades in Juniper Networks Inc., which fell as much as 45 percent off its weekly high. The chip sector, of which both companies are a part, also saw analysts this week downgrade some companies or express concerns about their outlooks ahead.

"This tells you that institutions were making most of the trades and the declines show they're quite clearly not buying," said Thomas Kee, chief executive of Stock Traders Daily, which compiled the Ciena and Juniper data. "But these institutions might not all be mutual funds, so it's hard to tell exactly how much of this might be window-dressing."

"I tend to think the market overplays what fund managers do," said John Forelli, portfolio manager at Independence Investment Associates. "If I wanted to get rid of Yahoo!, for example, why would I have waited until now to do so?"

In any case, the end-of-the-quarter activity is a reminder of the power institutional buyers command.

"Institutional buying and selling is the primary mover of the markets," said Todd Clark, co-head of trading at WR Hambrecht. "A year ago, you could have said that day trading was moving some of the Nasdaq stocks, but that's no longer true. Institutional buyers buy more and more often."

Statistics from the two biggest stock marketplaces also show the influence of large buys. Nearly 52 percent of the volume on the New York Stock Exchange in 2000 came from block trades, which are transactions of more than 10,000 shares. On the Nasdaq Stock Market, block trades made up 25 percent of the volume during the same time. But size isn't everything and, at the end of the day, individual investors still have a lot of power. Although they may not directly buy the most stock, their investments are the engine for the stock market's growth and activity.

"The underlying money that institutional buyers are using is coming from individual investors," said Bryan Piskorowski, market analyst at Prudential Securities, who points to recent studies suggesting investors are focusing on bond and money market funds, rather than equities, as one way individual investors are influencing the market's direction.

"Investors voting with their dollars to go to money markets or bonds rather than equities speaks volumes about the health of the market," he said. "Ultimately, investors' weight on the market comes to bear in where they invest. Right now, it's not in stocks. And that's evident on the market."

For the week, the Dow gained 374.00, or 3.9 percent, closing at 9,878.78 after advancing 79.72 yesterday. The Nasdaq fell 88.42, or 4.6 percent, for the week. It closed at 1,840.26 after gaining 19.69 yesterday.

The Standard & Poor's 500 rose 20.50 to post a 1.8 percent weekly gain. The S&P climbed 12.38 yesterday to end the week at 1,160.33. The Russell 2000 index, which measures the performance of smaller companies stocks, gained 7.26 points, or 1.64 percent, for the week. It closed yesterday at 450.53, up 9 points.



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